SYDNEY: The Australian dollar ticked higher on Wednesday after consumer price data proved a little firmer than forecast, though a key measure of core inflation still slowed enough to keep the door open to an interest rate cut next month.
The headline consumer price index rose 0.9% in the first quarter, just above forecasts of 0.8% and leaving the annual pace steady at 2.4%. The trimmed mean measure of core inflation slowed to 2.9%, from 3.3%, topping expectations of 2.8%.
However, the core still fell back into the Reserve Bank of Australia's 2% to 3% target band for the first time since late 2021 and could be enough to greenlight an easing at its next policy meeting on May 20.
Markets remain fully priced for a cut of 25 basis points in the 4.10% cash rate, though there was now little chance of an outsized half-point move which central bank watchers always considered unlikely.
Rates are seen reaching 2.85% or 3.10% by the end of the year, with the market having turned more dovish since U.S. President Donald Trump announced the scale of his tariffs and the resulting worries about global growth.
"The economy is facing a significant external demand shock from Q2 onwards," said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.
"With underlying inflation within the RBA's target range, the Bank has greater scope to help support the economy through this coming shock," he added. "We expect a 25 basis point cut in May, to be followed by two more cuts in the second half of the year."
The prospect of further easing saw Australian 10-year bond yields dip 2 basis points to 4.12%.
The Aussie was a fraction firmer at $0.6395, having hit a five-month high of $0.6450 the previous session before running into profit-taking. Support lies around $0.6344 and needs to hold to allow another tilt at the topside.
The kiwi dollar held at $0.5929 after running into offers around $0.5980 overnight. A break of support at $0.6910 could see a deeper pullback to $0.5825.
Investors also expect the Reserve Bank of New Zealand will cut its 3.5% cash rate by another 25 basis points when it meets on May 28. Rates are seen bottoming at 2.75% by October, putting them in expansionary territory.
An ANZ survey of businesses out Wednesday showed confidence in the outlook worsened in April amid worries about international trade. - Reuters
